N.J.S.A. 34:15-79(a) is the source of considerable litigation in workers’ compensation. It provides that “Any contractor placing work with a subcontractor shall, in the event of the subcontractor’s failing to carry workers’ compensation insurance as required by this article, become liable for any compensation which may be due an employee or the dependents of a deceased employee of a subcontractor.” There are many cases on the back end where an employee of a subcontractor is injured and brings a claim against the general contractor after the employee’s subcontractor is found to have no workers’ compensation coverage. But the case of Fournier Trucking v. New Jersey Manufacturers Insurance Co., No. A-1353-18T2 (App. Div. April 9, 2020), deals with the situation on the front end – after the policy of insurance is written and before any accident should occur. The focus in this case was on inaccurate information provided by the policy holder to NJM about the risks inherent in its business in order to reduce workers’ compensation premiums.
To appreciate the ruling in this case requires some
understanding of the details of the trucking business at issue. Shippers would hire Fournier Trucking to
deliver goods primarily to west coast states when the shippers had to deliver
less than a full truckload of product or when they had to make deliveries to
multiple locations. Fournier Trucking
(hereinafter “FT”) would use its own employees to collect loads from its
shipping company clients in the tri-state area and then gather them in its New
Jersey warehouse. FT would hire
independent motor carriers to then haul freight to west coast states. FT would coordinate communication between its
customers and the independent carriers, but the carriers provided their own
equipment. FT would send the customers
an invoice and then pay the carriers for transport services.
The relationship between FT and NJM began in 2003 through an
assigned risk policy. At that time FT
indicated that it had no owner operators.
In its initial audit NJM was of the understanding that FT used no
subcontractors or owner operators. For
the 2014-2015 policy year, NJM estimated an annual premium of $43,193 with a
total annual premium of $45,579.
However, an NJM auditor years later happened to notice a discrepancy in
the number of drivers reported by FT and the number of drivers which FT listed
in a federal licensing database. A site
inspection ensued and NJM learned for the first time that FT used between 15
and 20 independent motor carriers for shipping.
Naturally, NJM was concerned that it was exposed to much more risk than
it had ever appreciated since injured employees of carriers without workers’
compensation coverage could be covered under the above provision in Section
79(a). Therefore NJM unsuccessfully sought
information from FT about these carriers and their insurance certifications.
By July 2015 NJM still had not received any Form 1099s or
certificates of insurance for the carriers that FT worked with to ship to the
west coast. FT refused to provide any
such information. NJM was left with no
alternative but to estimate the remuneration paid by FT to the uninsured
carriers at an amount of $100,000. That
raised the total standard premium to $57,043 with the total cost of
$70,980. FT protested. While FT insisted that it had agreements
requiring the many carriers to maintain insurance, FT would not provide any
proof.
On December 23, 2015, FT’s lawyer acknowledged for the first
time that their motor carriers “in
certain cases employ their own employees.” FT denied that it issued any
Form 1099s to the carriers. Two months
later, the FT Vice President of Operations denied to NJM that the carriers had
any employees, contrary to the admission of their own counsel. She also said
that $100,000 would easily cover all payments that FT made to its
carriers. Later at trial the Vice President of
Operations had to recant her representations and admit as well that the company
was in possession of Form 1099s for some motor carriers it worked with in 2015. She also admitted that she never knew whether
or not the motor carriers had employees.
Since NJM could not receive information on coverage for FT’s
carriers, it did a second audit in 2016 and adjusted the premium for 2014-2015
to $344,001 with a total audited cost of $426,359. NJM indicated that it would not charge FT for
any additional risk if the company would just demonstrate proof that the many
carriers it worked with maintained workers’ compensation coverage for their
employees. FT then sued NJM seeking
injunctive relief. NJM counter sued for
breach of contract and fraud under N.J.S.A. 34:15-57.4.
During discovery FT listed a total of 81 carriers that it
utilized, 15 of which had multiple drivers.
The trial judge granted summary judgment in favor of NJM on breach of
contract counts and ordered FT to provide copies of information relating to its
carriers, including 1099s, certificates of insurances, and names and addresses
of the 15 carriers. The trial judge
held that NJM was entitled to charge a premium for amounts paid to the
uninsured subcontractors pursuant to N.J.S.A. 34:15-79(a).
On June 15, 2018, FT provided documents showing amounts paid
to 15 carriers in 2014 totalling $2.59 million dollars, more than 25 times
higher than the VP of Operations admitted. Only one of the carriers had
workers’ compensation for its employees.
Fourteen of the carriers FT was using had no workers’ compensation
coverage for their own employees. NJM
revised the new premium at this point to $145,321. On the remaining fraud count, the trial judge
found that FT was well aware all along that its carriers had employees and had
been well aware that it paid far more than $100,000 to its motor carriers. The judge found that FT purposefully and
knowingly made misleading and false statements to NJM to avoid payment of additional
premiums and withheld material information from NJM in violation of N.J.S.A.
34:15-57.4, the New Jersey Fraud Act.
The trial judge awarded NJM $254,329.17 for unpaid premiums
of $145,231, simple interest of $7,603.44, costs of $6,802.73 and attorneys’
fees of $94.692. The judge further found
that NJM’s witnesses were entirely credible while finding that FT’s VP of
Operations was less than credible.
FT appealed to the Appellate Division which affirmed the
trial judge on each issue. FT tried to
argue that its motor carriers were independent contractors but not
subcontractors under Section 79(a). The Court disagreed: “Because
the shipping companies that hire FT for individual shipments exercise little
control over FT’s transportation services, FT is clearly a ‘contractor’ for
those shipping companies within the meaning of N.J.S.A. 34:15-79(a).” The
Court added, “… subcontracting is merely ‘farming out’ to others all or part of
work contracted to be performed by the original contractor.” The Court said:
Shippers hire FT to consolidate and
transport goods. FT consolidates the
goods itself and then subcontracts with the carriers to perform the
transportation. Therefore, FT is a
contractor, and the carriers it uses to fulfill part of its contracts with
shippers are subcontractors.
Next, FT argued that carriers are not employees of FT but
are independent contractors. For its
part, NJM had already conceded this argument and had never argued that the
carriers were employees of FT. Rather,
NJM argued that the issue pertained to the employees
of the motor carriers who might be injured. The Court said:
By operation of N.J.S.A. 34:15-79(a), to the extent these carriers fail
to satisfy their statutory obligation, Fournier Trucking, as the general
contractor, is obliged to provide benefits to any carrier employee who suffers
an injury while providing services under Fournier Trucking’s general contract.
This opinion provides excellent clarity on the relationship
between the terms “independent contractor” and “subcontractor” for purposes of
Section 79. In effect, the Appellate
Division was saying that for the purposes of Section 79, an independent
contractor can be a subcontractor. The
case also provides the best discussion of any modern New Jersey case on the
duty of the policy holder to provide accurate and complete information to its workers’
compensation carrier and the ramifications of failing to do so. This case is unreported but merits
reconsideration by the Committee on Publications.
The post Policy Holder Made Material Misrepresentations To Its Workers’ Compensation Carrier Warranting Finding Of Fraud Under N.J.S.A. 34:15-47.4 appeared first on NJ Workers' Comp Blog.
